Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
, see all updates

Compensation: inducements: employment: taking up employment

Where, in other circumstances, consideration is received in cash or money’s worth as an inducement to take up employment and this is not assessable under employment income , see SE00700+ or EIM00700+, then it may be chargeable under TCGA92/S22 (1)(a) or (c), see CG12940+.

Where a taxpayer holds a contract to take up an office or employment but, before taking it up, is compensated for giving up their rights under the contract in such circumstances that the compensation is not assessable under employment income, it may be chargeable under TCGA92/S22 (1)(c), see CG12952.

The above paragraphs tell you that, where they are not assessable under employment income, payments made in connection with a contract of employment may be regarded as within TCGA92/S22 (1). As such, they are treated as capital sums derived from an asset, the asset being the contract itself.

The leading case on this is O’Brien v Benson’s Hosiery (Holdings) Ltd (53TC241). In this case, a director had paid the company £50,000 to be released from a service agreement with it. Was the service agreement an asset in the sense that the company had realised value from it? The Court considered it had. While its rights under the service agreement were not assignable and could only be turned to account in very limited circumstances, the fact remained that, in extracting a sum of money from the employee in return for releasing him from the contract, the company had turned its rights under the agreement to account.

Accordingly, those rights were an asset for Capital Gains Tax purposes and the £50,000 was consideration in the form of a capital sum which derived from that asset.